Disputed Property

Rule 1.15(e) governs the moment when a lawyer holds property and more than one person says it is theirs. It applies when, in the course of a representation, the lawyer possesses property in which two or more persons claim interests, and its parenthetical counts the lawyer among the possible claimants. The rule gives two commands: the property “shall be kept separate by the lawyer until the dispute is resolved,” and the lawyer “shall promptly distribute all portions of the property as to which the interests are not in dispute.”¹ Both commands extend the safekeeping duty that Rule 1.15 places on a lawyer who takes custody of property belonging to others.²

This section answers one question: who decides? A lawyer who holds disputed property is its custodian, not its judge. The problem is sharpest when the lawyer is a claimant, because the person holding the money would then rule on a question in which the lawyer has a financial stake, while the other claimants, who cannot see the trust account or compel anything from inside it, would have no check on the result. So the rule takes the decision out of the lawyer’s hands. The property stays where it is until the claimants agree or a tribunal with authority over the claim decides.

The two commands guard against opposite dangers, which is why they travel together. Separation protects the claimants’ ability to be paid: property that stays intact and identifiable can go to whoever prevails, but property the lawyer has spent or mixed with other funds makes the winner’s victory worthless. Prompt distribution of the undisputed portion blocks the reverse abuse, in which a quarrel over one item becomes a reason to freeze everything and the delay becomes leverage over an owner who needs the money. The fee dispute is the standard setting for both, and it is where the lawyer’s temptation to settle the matter by self-help is strongest. The subsections below take the separation command, the undisputed portion, and the lawyer’s own fee claims in turn.

Keeping Disputed Property Separate

The first sentence of Rule 1.15(e) tells the lawyer what to do the moment a dispute arises: when two or more persons claim interests in property the lawyer holds in the course of the representation, “the property shall be kept separate by the lawyer until the dispute is resolved.”³ The sentence has a trigger and a duty. The trigger is competing claims, and the lawyer may be one of the claimants. The duty is separation: for funds, the client trust account described earlier in this chapter, and for other property, identification and safekeeping apart from the lawyer’s own belongings.⁴ While the dispute lasts, the lawyer holds the property intact, and the decision belongs to someone else.

The rule matters most when the lawyer is a claimant. A lawyer who holds a settlement and believes part of it is owed as fees has a stake in the answer and the means to act on it at once, because the money is already under the lawyer’s control. If the lawyer could take whatever the lawyer thought was owed, the lawyer would judge the lawyer’s own case. Separation leaves nothing to take. It also keeps the money identifiable, so that whoever is later found entitled can actually be paid. And it does not leave the lawyer unprotected, since the disputed amount stays in the trust account, where it remains available to satisfy the lawyer’s claim if the claim succeeds.

The usual setting is a contingent-fee settlement in which client and lawyer disagree about how litigation expenses are deducted.

Hypothetical Illustration

A $100,000 settlement check arrives. The client says her share is 70% of the check, or $70,000, and the lawyer’s fee is the other $30,000. The lawyer says the 70% applies only after his $10,000 in litigation expenses come off the top, which leaves the client $63,000 and the lawyer $37,000. Everyone agrees the client is owed at least $63,000 and the lawyer at least $30,000; the remaining $7,000 is claimed by both. The lawyer deposits the entire check in his operating account, planning to sort out the $7,000 later. He has failed to keep disputed property separate, and the violation is complete at the moment of deposit. A second lawyer in the same disagreement deposits the check in the client trust account and leaves the $7,000 there until the two agree on the figure or a tribunal sets it. She has done what the first sentence of the rule requires.

The first sentence speaks of “the property” generally, but the sentence that follows carves out the undisputed portion for prompt payment, so what stays separate in practice is the part genuinely in contest. In the scene above, $63,000 goes to the client and $30,000 to the lawyer, and only the $7,000 remains. How a dispute ends is equally plain: the claimants agree, or a tribunal decides. The lawyer’s own conclusion that the claim is sound ends nothing, and neither does frustration with a stalled negotiation.

A lawyer who ends a dispute by taking the money also invites serious discipline. Where the money taken proves to be unearned, the disciplinary authority responds to misappropriation from the trust account with one of the more severe sanctions, presumptively disbarment, even when the lawyer meant to replenish the account by what amounts to a “loan.”⁵

The duty lasts only as long as a real disagreement does. When client and lawyer agree on the fee and the expenses, no one claims an interest that another contests, the first sentence is not triggered, and the lawyer may withdraw the amount owed. Florida’s rule says this in terms. Property in which two or more persons claim interests is treated as trust property, and the lawyer’s portion “shall be withdrawn within a reasonable time after it becomes due unless the right of the lawyer or law firm to receive it is disputed, in which event the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.”⁶ That structure matches the Model Rule: the property stays entrusted property until it has been divided.

The same instruction operates when a court controls the money. Uzyel v. Kadisha is a California appellate decision arising from a consolidated breach-of-trust proceeding, and the orders at issue called for the return of $250,000 to each of two trusts.⁷ The parties stipulated that the return would be deemed accomplished while the funds remained on deposit in the bank account of the trustee’s attorney, and the court modified its orders to provide that “no withdrawals or expenditures therefrom may be had except upon the order of this court.”⁸ The decision resolves a trust dispute and does not analyze the lawyer-conduct rule. It does show the picture the rule has in mind when claimants cannot agree: the money sits intact in an account an attorney holds, and a court, not the attorney, decides when any of it moves.

Paying the Undisputed Portion

The second sentence of Rule 1.15(e) limits the first. Having required separation of disputed property, the rule continues: “The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.”¹⁰ Two phrases do the work. “All portions” reaches every part of the property that no claimant contests, and “promptly” brings the urgency that governs delivery to an owner generally. A disagreement therefore freezes only what is in contest. In the settlement above, $63,000 goes to the client and $30,000 to the lawyer at once, and only the contested $7,000 stays in the trust account.

The second sentence exists because custody is leverage. The owner cannot see the account or compel anything from inside it, so a lawyer who could suspend the whole fund over a modest claim could press the owner to accept the lawyer’s view of the disputed part or keep waiting for money no one contests. The rule closes that route. The lawyer may keep the disputed amount in the trust account but may not take it, and the lawyer may not hold the undisputed remainder hostage while the question is open.¹¹ Prompt payment also respects the owner’s claim to what is plainly the owner’s: a client entitled to $95,000 should not wait through a long dispute over $5,000 before using it.

An exam question built on this rule usually asks how much the lawyer must pay out, and the answer is everything except the contested amount. The hold is as large as the claim and no larger. The command also has a floor: if every claimant asserts an interest in the entire fund, no portion is free of a competing claim, the second sentence has nothing to distribute, and the first sentence keeps all of it separate.

The duty runs in both directions, because the rule speaks of portions in which the interests are undisputed and does not mention the client alone. A lawyer’s own undisputed fee is such a portion, and leaving it in the trust account would mix the lawyer’s money with entrusted money, the commingling problem covered earlier in this chapter. Florida’s rule states both sides together. The lawyer’s portion is withdrawn within a reasonable time after it becomes due unless the lawyer’s right to it is disputed, in which case only the disputed portion stays separate, and the rule then repeats the command to promptly distribute all portions in which the interests are not in dispute.¹² Read together, the two sentences divide a mixed fund cleanly: what is entrusted and contested stays put, and everything else leaves the account. The same division applies when a third person, such as a medical provider, claims part of a client’s money. The client’s uncontested share is paid promptly, and how the lawyer weighs the third person’s claim is the subject of the next section on competing third-party claims.

Lawyer Fee Disputes and Liens

Rule 1.15(e) expressly contemplates that the lawyer may be a claimant: when two or more persons, “one of whom may be the lawyer,” claim interests in property the lawyer holds in the course of a representation, the property “shall be kept separate by the lawyer until the dispute is resolved.”¹⁴ The common case is a lawyer who holds a settlement or other payment for a client and says part of it is owed as fees or expenses. The rule’s answer has two sides. The lawyer may keep the disputed amount in the trust account and so retain security for the claim, but the lawyer may neither take that amount personally nor hold back the whole payment to gain an advantage in the dispute.¹⁵

The lawyer cannot pay the fee from the account because a fee dispute sets the lawyer’s interest against the client’s entitlement while the lawyer alone controls the money. If confidence that the fee was earned justified a withdrawal, the lawyer would decide a question in which the lawyer has a stake, and the client would learn of the decision after the money was gone. Every client who questioned a bill would then risk losing the amount questioned. Holding the money in trust avoids that result without leaving the lawyer unprotected: the disputed amount stays intact for whoever is later found entitled, and the decision passes to the claimants’ agreement or to a tribunal.

The lawyer in Attorney Disciplinary Board v. Rhinehart shows the forbidden side of the line. He paid himself fees out of settlement funds in the trust account although he knew the clients disputed the amount, and the Iowa Supreme Court found a violation.¹⁶ The permitted side looks like this.

A lawyer who claims fees from a client’s money often calls the claim a lien, a legal claim on property that secures payment of a debt. Rule 1.15 does not create liens; it operates alongside the law that does. Florida’s rule says so directly. It “does not preclude the retention of money or other property upon which the lawyer has a valid lien for services nor does it preclude the payment of agreed fees from the proceeds of transactions or collection.”¹⁷ The word “valid” carries the weight: only a lien the law recognizes supports retention, and the permission for agreed fees depends on agreement, not on the lawyer’s own view of what is owed. Retention under a valid lien and separation under the dispute rule work together. The lawyer holds the property rather than releasing it, and holds it apart from the lawyer’s own funds until the dispute is resolved.

Florida’s rule also limits what a lawyer may do with money a client entrusted for a particular job. Money or other property entrusted for a specific purpose, including advances for fees, costs, and expenses, “is held in trust and must be applied only to that purpose.” Client money and property are “not subject to counterclaim or setoff for attorney’s fees,” and a refusal to account for and deliver them on demand “shall be deemed a conversion.”¹⁸ A lawyer therefore cannot treat money delivered to pay a settlement as a fund for collecting an older bill. The lawyer’s protection against an unpaid fee lies in keeping a disputed amount in trust, not in setting the bill off against the money.

A last contrast separates the lawyer’s handling of the money from the amount of the fee. Under Florida’s rule, controversies as to the amount of fees “are not grounds for disciplinary proceedings unless the amount demanded is clearly excessive, extortionate, or fraudulent.”¹⁹ Honest people differ about what work is worth, and a disciplinary charge for every price disagreement would punish good-faith billing. Even when a fee is attacked as clearly excessive, extortionate, or fraudulent, the lawyer’s announced willingness to submit the amount to a competent tribunal may be considered on intent or in mitigation, yet it does not exclude other relevant evidence, including evidence of withholding the client’s funds or property or other injury to the client.²⁰ The protection therefore covers the amount only. A lawyer who charges a fee within that standard and then pays herself from the trust account over the client’s objection has still broken the separation command, because Florida’s rule keeps the disputed portion separate until the dispute is resolved.²¹